EURUSD is in the process of forming a head and shoulders pattern on its daily time frame as it completes the right shoulder. The neckline is located at 1.1700 and a break below this support could send price down by around 400 pips or the same height as the reversal formation.
However, the 100 SMA is safely above the longer-term 200 SMA so the path of least resistance is still to the upside. In addition, the gap is widening to signal that bullish pressure is getting stronger. Stochastic is also on the move up so EURUSD might follow suit while bulls remain in control.
Germany reported a stronger than expected increase in WPI of 0.6% versus 0.4% while the region’s trade balance also beat expectations with a 21.6 billion EUR surplus versus the consensus at 20.3 billion EUR.
While euro zone economic data has been mostly stronger than expected, the focus has mostly been on political uncertainties, particularly in Spain. The government has given Catalonia eight days to declare independence but Puigdemont has called for talks instead. Meanwhile, the elections in Austria also reflected growing dissatisfaction with the status quo.
As for the US dollar, the currency drew some support on rumors that Trump is also considering John Taylor for the Fed Chairmanship position. He is perceived to be a more hawkish candidate compared to the other contenders in the list, and traders are also looking forward to Trump’s meeting with Yellen later this week.
Data from the US also turned out better than expected as the Empire State manufacturing index rose from 24.4 to 30.2. Industrial production data is up for release today and a 0.3% rebound is eyed. Data on import prices and capacity utilization are also lined up.